The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
We think an SSP-COX deal makes the most sense. Recall that on 7/24, Cox Enterprises announced its intention to explore strategic options for its 14 TV stations in 10 markets. Our view at the time was that Cox understood its need for scale (Cox covers only 6% of the U.S. with the UHF discount) and is looking for a partner (i.e. GTN-Raycom) rather than the highest bidder. While the process initially involved just about every broadcaster in the space, there are 3 final bidders per press reports – SSP, TGNA & Hearst – looking to pay “almost $3B”, or 11x ‘18/’19 EBITDA per our ests. Based on our analysis, an SSP deal makes the most sense from a geographic/regulatory and an accretion standpoint (16% ‘18/’19 blended FCF/sh.) but we also ran the math for two additional scenarios: TGNA buys the whole thing (15% FCF accretive) or TGNA & Hearst team up to split the assets (12% FCF accretive to TGNA). CONFIRMATION SHOULD COME END OF JAN/EARLY FEB.
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
It’s no secret that the RSN sale is not going swimmingly. While the press is reporting significant interest (i.e. 40 bidders in Round 1), the price tag seems to be well below what we would call DIS’s “acceptable range” so far. Of course, there is still quite a bit of runway left to get a final deal done – so it’s not ovah until it’s ovah. In this note, we dive deep into the RSNs – with a detailed history, financial snapshot and potential valuation. We also look at our coverage group to see who has the most interest AND ability to potentially transact. We have 2 over-riding conclusions: 1) While DIS is likely to lose ~$9B of deal value, the RSN sale does NOT materially impact PF synergies, PF growth, or DIS’s ability to de-lever. 2) We view the Yankees as the most likely buyer of YES ($5-6B) and SBGI as the most likely “winner” (or not) of the remaining 21 RSNs (~$11B).
We went straight from our launch (check out our 252-page slide deck – which was NOT an easy feat) to a whirlwind of marketing – hitting NYC, NYC (not a typo), Boston, the Mid-Atlantic, and more NYC. Ahead of us is CT, the West Coast, NYC (again, not a typo), and then Europe (Cheers!). The biggest surprises from our first set of meetings have been: 1) The fact that just about every conversation has begun with New DIS and New FOXA (there are way more bulls than bears). 2) There appears to be significant incremental interest in OUT and ATUS. 3) There appears to be significantly more concern re. CBS & VIAB. 4) No one has pushed back on our “downgrade” of DISH (Peer Perform). And 5) Local isn’t a huge focus due to macro and leverage. BOTTOM LINE: We feel incrementally positive on New DIS, New FOXA, CMCSA, ATUS and OUT; we are worried that our positive call on VIAB might take longer to play out.
You may wonder based on our title why we are initiating TGNA with a Peer Perform rather than an Outperform. The reason for this is because while we acknowledge that TGNA has substantial M&A optionality relative to its peers (via its high retrans rates and simple ownership structure), we still struggle with our TGNA estimates as we continue to have no idea how to model Premion – both on the revenue and expense side. This product isn’t broken out, and mgmt. doesn’t discuss “core” the way everyone else does so we are just confused. And in the back of our minds, we ask ourselves if Premion is so incremental, why isn’t TGNA outperforming its peers in terms of revenue growth? From where we sit today, Street numbers appear too high – thus, that is our concern. When it comes to M&A, we do believe that TGNA has a pretty good chance of snagging the Cox assets – but so do SSP and Hearst, in our view; and TGNA’s overlap with Cox tends to be in Cox’s two top revenue-generating markets – Atlanta and Dayton! So it’s tough to say what happens here. Given limited visibility into M&A combined with our concerns over Street estimates, we initiate TGNA with an Peer Perform and $15 price target.
We think AMCX is doing the absolute best it can with the assets it has. And it has been a good stock – relative to the rest of our sector(s) under coverage, +6% YTD vs. the S&P, +1%. But we’re not sure that the “as-long-as-it-isn’t-as-bad-as-expected-thestock-will-work” thesis is sustainable. We want to be clear – our call is that this stock is likely to underperform its peers next year, but we still get 16% upside from today’s price. It just isn’t enough for us to hang our hat on – we would love to see real momentum (or even stabilization) in the story from some of the really good content that AMCX has on its schedule (Better Call Saul, Preacher, Into The Badlands, The Son, Dietland, The Terror, Lodge 49, McMafia, etc.). But it still feels as if there is so much reliance on The Walking Dead (TWD) – just listen to the last earnings call or read the transcript. You know how many times TWD was mentioned in prepared remarks? We counted – it was 23. That’s way too many for me to survive a drinking game (although admittedly I am a total light weight so maybe I should say that is way too many for ERIC to survive a drinking game – he said he’s willing to find out). So relative to our expectation for its peers, we initiate on AMCX with an Underperform and $66 price target.
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